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Unilever Primps for the Hair Aisle

Proposed Alberto Culver Acquisition Would Set Up Challenge to P&G, L'Oréal

By

Paul Sonne And

Ellen Byron

Updated Sept. 28, 2010 12:01 a.m. ET

With its proposed $3.7 billion acquisition of U.S. hair-care firm
Alberto Culver Co.
ACV -2.42%
,
Unilever
PLC is taking a deeper plunge into the world of personal-care products—and moving toward a more direct confrontation in the shampoo aisle with rivals
Procter & Gamble Co.
PG -0.30%
and L'Oréal SA.

The Anglo-Dutch consumer-goods giant said Monday that it would acquire Alberto Culver, a deal that adds VO5, Nexxus and TRESemme to Unilever's existing stable of hair-care products and shows that the company known for making Lipton tea and Ben & Jerry's ice cream is serious about hair, too.

The proposed deal, which would mark Unilever's biggest acquisition in a decade, signals that Chief Executive Paul Polman is eager to prevent being squeezed by P&G and L'Oréal in the hair-care segment. It would also shift the balance of Unilever's business away from food and further into personal care, a division that has been Unilever's strongest during the past decade, in part because the products command higher gross margins and remain less dependent on commodity prices.

Shares in Unilever rose 1.3% to £18.16 ($28.74) on the London Stock Exchange on Monday.

If the deal is approved, Unilever would likely fold much of Alberto Culver's infrastructure into its own, and then push its newly acquired shampoo and skin-care products into more markets around the world, using its powerful global distribution network. Unilever could also build Alberto Culver's niche products—such as Simple skin creams and Mrs. Dash seasonings—into more global brands.

Primarily, however, the deal would help Unilever straighten out its hair-care efforts. "They like to say they own the supermarket, but the degree to which they own individual aisles in the supermarket is very mixed," said Martin Deboo, an analyst at Investec PLC. "One of the aisles they haven't convincingly owned is the hair-care aisle."

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That's in part because P&G—which owns Herbal Essences, Head & Shoulders and Pantene—has been fighting hard against Unilever, particularly in Asia. Add to that a fierce competitor in French consumer-goods company L'Oréal, which sells Matrix, Garnier Fructis and Redken hair products, and Unilever needed a boost.

The competition is intense. P&G and L'Oréal each count three shampoos in the top-10 U.S. hair-care brands as measured by market share. The two companies held 12% and 10%, respectively, of last year's $350 billion global beauty and personal-care industry, according to Euromonitor International.

Monday's proposed deal would make Unilever more competitive, by adding a second top-10 U.S. hair-care brand, TRESemme, to its existing top-10 Suave brand, and by raising Unilever's global market share of the beauty and personal-care segment from 6.8% to 7.2%.

The deal stands to intensify a brutal market-share battle in U.S. shampoo aisles that already has included price cuts. "It's never been this bad," said Deutsche Bank analyst Bill Schmitz. "The category isn't growing, and there's little differentiation between what seems like a thousand different brands."

Mr. Deboo added, "There's no getting away from it: This is a street fight."

In the U.S., it is a fight in an increasingly difficult market. The recession hit discretionary goods such as hair-care products especially hard. Overall U.S. sales of hair-care products totaled $10 billion last year, down 4% from the previous year, according to Euromonitor.

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Unilever's deal comes at a particularly sensitive time for P&G's Pantene. During the recession, women traded down to low-priced rivals such as Suave and TRESemme, soon to both be owned by Unilever.

Last year, Pantene's U.S. sales dropped 9% to $812 million, far steeper than the 3% decline for shampoos, conditioners and styling products overall, according to Euromonitor. This spring, P&G relaunched Pantene with new formulas, packaging and marketing.

"We're solely focused on growing our retail hair-care business organically," a spokesman for P&G said Monday. "Even if we had considered Alberto Culver, it's highly unlikely that regulators in the U.S. would have approved the deal given our leading market-share position."

A spokeswoman for L'Oréal declined to comment.

Mr. Deboo, of Investec, said the Alberto Culver deal also points to Mr. Polman's gradual rebalancing of Unilever away from its slower-growth food business toward the home and personal-care sectors. The deal comes a year after Unilever bought Sara Lee Corp.'s deodorant and body-care business for €1.28 billion ($1.73 billion), and not long after Unilever sold its tomato-products operation in Brazil and its frozen-food business in Italy.

"Personal care is a strategic category for Unilever and growing rapidly," Mr. Polman said in a written statement Monday. Personal care represents more than 30% of Unilever's roughly €40 billion in annual sales, up from 20% 10 years ago. Sanford C. Bernstein & Co. predicts that, with the Alberto Culver business, personal care would account for 35% of Unilever's sales in 2011.

A.G. Lafley, P&G's chief executive until 2009, likewise moved the company toward higher-margin, faster-moving personal-care products. During his tenure, Mr. Lafley sold nearly all of P&G's food businesses, including Jif peanut butter, Crisco shortening and Folgers coffee. To be sure, Unilever isn't expected to engage in a wholesale divestiture of its big food business.